Financing solutions based on collateral such as equity in a home or assets in a portfolio provide an alternative to credit cards and personal loans. With margin, one can leverage and borrow against eligible securities in a portfolio. Typically, up to 50% of the market value of the eligible securities can be borrowed. The borrowed amount can be used for personal financing or investment financing such as to rebalance the portfolio and/or to diversify holdings, all without liquidating assets or incurring potential capital gains taxes. The margin loan and the securities assets are comingled in the same account. The interest rate on the margin loan is typically based on the outstanding balance of the loan.
However, some types of investment products and securities and accounts may not be used to pledge for a margin loan. Furthermore, margin carries advance rate limitations based on regulation requirements (Regulation T) and does not allow access to liquidity across multiple accounts. These restrictions make it difficult for the current margin product to meet consumer and business demand for non-purpose lending. Clients typically do not want to commingle their financial transactions, but instead prefer that non-purpose credit transactions be segregated from investment activities.
In order to borrow against securities for a non-purpose loan, a client needs to fill out an application, receive credit approval, sign loan documents, set up a separate pledge collateral account, then transfer assets into this account where they are generally not allowed to trade. Furthermore, from the financial institution part, collateral monitoring processes are performed within various business groups on different systems. Such securities based lending is further strictly regulated (Regulation U) and includes limitations resulting in a laborious manual process for a client to obtain a loan based on their securities held in a brokerage account. FIG. 1A illustrates a process for loan origination and servicing in accordance with a prior art. The manual processes must originate loans, approve loan draw-downs and payments, monitor collateral and send call notification at 110. The origination process starts at 112 where the financial advisor submits a request to the finance director. At 116, the finance director forwards the request to credit administration. At the 118, the finance director approves the request upon review of the credit. At 120, documentation is prepared, signed, and returned to another facility. The credit facility account is created at 122. The account includes securities processing 124, cash balances in collateral account 134, and deal inputting 126 and deal processing 136. The securities processing occurs at 128 where the collateral account is reconciled at 130 and monitored at 132. Separate processes are established at 138 with journal entry processing 140 and collateral monitoring 142. The above illustrates the manually intensive process in order to originate and approve a loan, monitor collateral and send call notification.
Accordingly, a need exists for a method and consolidated system for establishing and managing loans, lines of credit and pledge collateral in an integrated way. It would be desirable to have an integrated securities-based lending platform that leverages the broker-dealer infrastructure, that traditionally supports margin lending, to support Regulation U and Bank Regulated loans, while at the same time eliminating the cumbersome and labor intensive business processes currently inherent in most lending institutions. A primary purpose of the present invention is to solve these needs and provide further, related advantages.